The month of December was brutal for equity investors. From 11/30/18-12/31/18 (not shown in chart), the S&P 500 Pure Growth Index posted a total return of -9.23%, compared to -12.23% for the S&P 500 Pure Value Index, according to Bloomberg.

As indicated in the chart, stocks have rebounded nicely in the first half of January 2019.

The S&P 500 Index closed at 2,610.30 on 1/15/19. It stood 10.93% below its all-time closing high of 2,930.75 on 9/20/18, according to Bloomberg.

The S&P 500 Pure Growth Index outperformed its value counterpart in four of the six periods featured in the chart. Growth investing topped value investing for the 15-year, 10-year, 5-year and 1-year periods ended 1/15/19.

As of 12/31/18, the two largest sector weightings in the S&P 500 Pure Growth Index were Information Technology (21.9%) and Health Care (16.4%), compared to Financials (33.0%) and Consumer Discretionary (16.9%) for the S&P 500 Pure Value Index, according to S&P Dow Jones Indices.

We believe that growth stocks would likely assume the leadership role in the market in 2019 if the U.S. were to forge a new trade agreement with China.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. The S&P 500 Pure Growth Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest growth characteristics based on three factors: sales growth, the ratio of earnings-change to price, and momentum. It includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score. Constituents are drawn from the S&P 500 Index. The S&P 500 Pure Value Index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics based on three factors: the ratios of book value, earnings, and sales to price. It includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score.

On 1/14/19, the S&P 500 Index closed the trading session at 2,582.61, 11.88% below its all-time high of 2,930.75 set on 9/20/18, according to Bloomberg.

For the market to trend higher, we believe that corporate earnings will need to grow, and perhaps the best catalyst for growing earnings is to increase revenues.

From 1926-2018 (93 years), the S&P 500 Index posted an average annual total return of 9.99%, according to Ibbotson & Associates/Morningstar.

As indicated in the table, Bloomberg's 2019 and 2020 consensus year-over-year (y-o-y) earnings growth rate estimates for the index were 7.0% and 10.9%, respectively, as of 1/11/19.

Three of the 11 major sectors that comprise the index reflect double-digit y-o-y earnings growth rate estimates for 2019, and that number jumps to seven in 2020.

Bloomberg's 2019 and 2020 consensus y-o-y revenue growth rate estimates for the S&P 500 Index were 4.5% and 5.1%, respectively, as of 1/11/19.

Three of the 11 major sectors reflect y-o-y revenue growth rate estimates of 5.0% or more for 2019, compared to five for 2020.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

Cooler heads prevailed in U.S. equity markets last week. With the backdrop of strong economic data, the S&P 500 was up 2.6%, while the VIX index (a popular volatility measure) fell to ~18.2 for the first time since early December. U.S./Chinese trade news was positive last week after high-level trade talks concluded, the first since the G20 summit last November. The recent talks went so well they spilled into a 3rd day and a joint statement on progress is expected next week. Tuesday, FOMC notes from their December meeting were released and several officials indicated that given "muted inflation pressures" the committee could "afford to be patient" on future rate hikes. The continued dovish comments from the committee have been well received by equity markets as the systemic rate raises of the last few years have given way to more dynamic rate decisions. PG&E Corp. spiraled down -28% last week after bankruptcy fears spiked after the beleaguered California utility saw their debt downgraded to junk by Standard & Poor's. PG&E was cut from BBB- down five spots to B and remained on negative watch at the rating service. Later in the week, two of PG&E's smaller natural gas suppliers also stopped shipments because of fears they wouldn't be paid. Netflix Inc. was a top performing name after return 13.4% last week. Multiple analysts upgraded the streaming video provider ahead of next weeks expected announcement of 4th quarter results. General Motors and Ford were both up over 9% last week after GM said 2018 profits exceeded its expectations. General Electric Co. has been gaining momentum returning 8.6% last week on expectations that selling their Capital Aviation Service business could unlock ~$25b in cash and help stabilize their balance sheet. All told, as economic data remains strong, we remain bullish on U.S. equity markets.

On January 9, The Federal Reserve Board and the Federal Open Market Committee released the minutes of the Committee meeting held on December 18-19, 2018. In discussing financial markets for the intervening period, they noted increased volatility in asset prices from reduced risk-taking by investors. They cited China and United States trade, global growth outlook and Brexit negotiations as reasons for reduced risk taking. In review of the United States economic situation they indicated that labor market conditions continue to strengthen, industrial production continues to expand, household spending continues to increase but real residential investment declined further in the fourth quarter. Notably, the committee discussion saw the participants conclude that "the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier." Last week's Monday ISM non-manufacturing index reading registered a decline to 57.6 in December which was below expectations but still signaling expansion. Friday's Consumer Price Index registered a 0.1% decline for the month of December as energy prices fell 3.5% for the month. "Core" CPI, which excludes food and energy, increased 0.2%. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: January Empire Manufacturing (11.8, 10.9) and December final PPI Demand MoM (-0.1%, 0.1%); Wednesday: January 11 MBA Mortgage Applications (N/A, 23.5%) and December Retail Sales Advance MoM (0.1%, 0.2%); Thursday: January 12 Initial Jobless Claims (220K, 216K) and Friday: December Industrial Production MoM (0.2%, 0.6%) and University of Michigan January preliminary Sentiment (96.4, 98.3).

Today's chart is intended to give investors some visual perspective on where equity analysts think earnings are headed. It provides a two-year window into earnings and earnings estimates.

With respect to the S&P 500 Index, as of 1/9/19, earnings were projected to rise from $35.51 in Q1'18 to an estimated $45.05 in Q4'19, or a potential increase of 26.87%.

The S&P MidCap 400 Index earnings were projected to rise from $22.58 in Q1'18 to an estimated $31.09 in Q4'19, or a potential increase of 37.69%.

The S&P SmallCap 600 Index earnings were projected to rise from $10.11 in Q1'18 to an estimated $15.68 in Q4'19, or a potential increase of 55.09%.

As of 1/9/19, the S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indices stood 11.80%, 14.77% and 18.36%, respectively, below their all-time highs set in Q3'18, according to data from Bloomberg.

We believe that corporate earnings drive the direction of stock prices over time, especially when the major indices are trading at or near record highs.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. There can be no assurance that any of the projections cited will occur. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization.

Today's blog post features the cumulative total return performance of five major equity indices (three domestic and two foreign) since the start of 2000.

We chose to highlight rolling 5-year periods because equity investors have endured two severe and lengthy bear markets (20% or more price decline from recent peak) since the start of 2000, and we came very close to registering a third one in Q4'18. Investors have also weathered a significant number of challenging global events since 2000.

We also like to occasionally remind investors that the buy and hold strategy can still serve them well over time.

The two bear markets in stocks ran from 3/24/00 through 10/9/02 and from 10/9/07 through 3/9/09, as measured by the S&P 500 Index. The S&P 500 Index posted total returns of -47.38% and -55.25%, respectively, according to Bloomberg. In Q4'18, the S&P 500 Index declined 19.36% on a total return basis from its all-time high set on 9/20/18 through the low for the quarter on 12/24/18. It never declined by 20% on a closing basis.

Here are just a few of the challenging global events we alluded to: 9/11 terrorist attacks in U.S. (2001); Invasion of Iraq/2nd Gulf War (2003); U.S./Global financial crisis (2008-2009); Greek debt crisis (2009); U.S. stock market flash crash (2010); Japan's tsunami/9.0 earthquake (2011); the UK's decision (Brexit vote) to leave the European Union (2016); and an escalating trade conflict between the U.S. and China (2018).

Emerging markets equities clearly performed the best in the first decade covered in the table but have underperformed the U.S. indices markedly in the current decade.

Mid- and small-capitalization (cap) stocks in the U.S. have performed the best in the current decade, but also performed relatively well in the first decade.

Points 6 and 7 indicate that investors have been willing to assume some additional risk, by favoring emerging markets, small-cap and mid-cap stocks, despite the negative events occurring around the globe, in our opinion.

From 12/31/99-12/31/18, the average annual total returns for the five equity indices were as follows (not shown in table): 4.86% (S&P 500); 8.67% (S&P MidCap 400); 9.15% (S&P SmallCap 600); 2.54% (MSCI Daily TR Net World ex-U.S. in USD); and 6.10% (MSCI Daily TR Net Emerging Markets in USD), according to Bloomberg.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

Equities closed the New Year holiday shortened week positive, after the S&P 500 Index was up 0.78%. Equities stumbled to start last week after poor economic numbers from China and Europe, as well as weak ISM data from the US. On Friday, U.S. December non-farm payroll data had a large upside surprise with 312k new jobs, while expectations were 184k. Further, Fed Chair Powell indicated a more flexible approach to rate raises in 2019. This was welcomed news and combined with the FOMC expectations of only 2 rate raises this year, down from 3, helped equities soar as the S&P 500 Index was up over 3.3% Friday. Bristol-Myers Squibb Co. agreed to acquire Celgene Corp. for $50 in cash and a share of the combined company. The combined company, with a market cap over $150b, would be the fourth largest pharma company behind Johnson & Johnson, Pfizer Inc. and Merck & Co. Apple Inc. ushered shares lower after reducing their sales guidance from $89b-$93b down to $84b for 1st quarter 2019. The hardware behemoth cited demand issues in China as the main reason for the reduction. Overall, shares fell nearly 9% on Thursday but did recover nearly 3.5% on Friday. Naturally the poor Apple expectations rippled through their parts suppliers as Skyworks Solutions Inc. and Broadcom Inc. both were over 8% lower Thursday. Despite the bearishness that has befallen equity markets, if job and corporate profit data remain strong, as well as GDP growth and consumer spending this might point to a rebound in equities and provide a firmer growth catalyst going forward.

Investors welcomed in the New Year with a shortened, albeit event-filled first week. Thursday's weaker-than-expected December ISM Manufacturing Index number raised questions about the strength of the United States economy. US Treasury note yields were down on the news, with the 10-year Treasury note yield and the 30-year Treasury note yield falling to their lowest since January of last year. On Friday, nonfarm payrolls rose 312,000 in December, crushing the consensus expected 184,000. Including revisions to October/November, nonfarm payrolls increased 370,000. The strong jobs data alleviated some concerns of a slowing economy. At the same time in Atlanta, Federal Reserve Chairman Jerome Powell softened his tone by saying policymakers "wouldn't hesitate to make a change" if needed and that the Federal Reserve is listening to the concerns of the market. Treasury yields surged on the news, with the 10-year Treasury note yield recording its biggest single-day gain since November of 2016. Major economic reports (related consensus forecasts, prior data) for the upcoming week include (Factory orders/durables data postponed by government shutdown): Monday: December ISM Non-Manufacturing Index (59.0, 60.7); Tuesday: November Trade Balance (-$54.0b, -$55.5b), November Preliminary Wholesale Inventories MoM (0.5%, 0.8%), November New Home Sales (568k, 544k), November Construction Spending MoM (0.2%, -0.1%), November Factory Orders (0.3%, -2.1%), November Final Durable Goods Orders (n/a, 0.8%); Wednesday: January 4 MBA Mortgage Applications (n/a, -8.5%); Thursday: January 5 Initial Jobless Claims (225k, 231k); Friday: December CPI MoM (-0.1%, 0.0%).

Today's blog post is one we do ongoing so that investors can monitor fluctuations in bond prices relative to changes in interest rates.

The yield on the benchmark 10-year Treasury note (T-note) rose from 2.41% at the close of 12/29/17 to 2.69% on 12/31/18, or an increase of 28 basis points (bps), according to Bloomberg. The closing low for the period was 2.41% (12/29/17), while the closing high was 3.24% (11/8/18). The all-time closing low for the yield on the 10-year T-note was 1.36% on 7/8/16, according to Bloomberg.

Since 12/29/17, the Federal Reserve ("Fed") has increased the federal funds target rate (upper bound) 100 bps, from 1.50% to 2.50%. The Fed has signaled that it is currently considering two more hikes in 2019.

For the 30-year period ended 12/31/18, the federal funds target rate (upper bound) averaged 3.18%, according to Bloomberg. On a historical basis, the Fed's current monetary policy is not tight.

All bond indices in the chart reflect a downward adjustment in pricing year-over-year.

The combination of rising interest rates and trade tariffs have some pundits concerned that global economic growth could slow, and this outlook is likely already impacting bond prices, in our opinion. We intend to monitor these events closely.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The ICE BofAML 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofAML Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The S&P/LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofAML 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofAML U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofAML U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofAML Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

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